Cardinal Company is considering a five-year project that would require a $2,755,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 14%. The project would provide net operating income in each of five years as follows: Sales $ 2,875,000 Variable expenses 1,124,000 Contribution margin 1,751,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 721,000 Depreciation 551,000 Total fixed expenses 1,272,000 Net operating income $ 479,000 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. 7. What is the project’s payback period? (Round your answer to 2 decimal places.)
Cardinal Company is considering a five-year project that would require a $2,755,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 14%. The project would provide net operating income in each of five years as follows: Sales $ 2,875,000 Variable expenses 1,124,000 Contribution margin 1,751,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 721,000 Depreciation 551,000 Total fixed expenses 1,272,000 Net operating income $ 479,000 Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table. 7. What is the project’s payback period? (Round your answer to 2 decimal places.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Cardinal Company is considering a five-year project that would require a $2,755,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 14%. The project would provide net operating income in each of five years as follows:
| Sales | $ 2,875,000 | |
|---|---|---|
| Variable expenses | 1,124,000 | |
| Contribution margin | 1,751,000 | |
| Fixed expenses: | ||
| Advertising, salaries, and other fixed out-of-pocket costs | $ 721,000 | |
| 551,000 | ||
| Total fixed expenses | 1,272,000 | |
| Net operating income | $ 479,000 |
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.
7. What is the project’s payback period? (Round your answer to 2 decimal places.)
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